Yellen, FedEx to offer clues as short-seller sting returns to markets

By Shawn Langlois

20th Century Fox/Everett Collection

The lifeless market that’s gone two months without a single 1% blip may finally get defibrillated by the Fed, should Janet Yellen get all Mark Carney on us. (Won’t happen.) Or if FedEx tells us something we don’t already know. (Well they still topped estimates, but that’s yet to give futures a nudge.)

So where does that leave us?

Well, there is ONE development that might actually signal the onset of a more volatile market, and that’s the return of the short squeeze.

Of course, it’s way too soon to draw any conclusion here, but if Tuesday’s action is any indication, investors are sniffing around those same riskier issues bears are trying to fleece to the downside. Earlier this year, a major market theme was the outrageous outperformance of the glamor stocks. Then it flip-flopped a few months back when they all retrenched. Another shift could be underway (see chart below).

Now, three straight tepid moves higher could well turn into a fourth, but another record high on the S&P might have to wait, unless stocks are ready to break the string of sub-1% moves. We sit half a percentage point away from the June 9 peak.

And nothing says rally starter quite like the combination of hawkish inflation, weak housing, Ukraine and Iraq. Are you ready to move your investment dollars to other countries yet? Our “call of the day” seems to be leaning that way.

The quote of the day:“After 13.5 years, there is more than enough evidence for reasonable people to conclude that the presidencies of George W. Bush and Barack H. Obama are easily the most destructive in U.S. history.” — Charles Hugh Smith, the writer responsible for the Of Two Minds blog.

The Fed: The two-day meeting winds down, and we’ll get the statement at 2 p.m. Eastern. A half-hour later, Janet Yellen will do her thing. Here are five questions we might get answered by the time the dog-and-pony show comes to an end.

FedEx’s
/quotes/zigman/254280/delayed/quotes/nls/fdxFDX top line exceeded estimates, helping boost shares 4% in premarket. It’s a good thing considering two quarters in a row of misses on the bottom line. The CFO also said results in the just-started year will be even stronger than the last.

The chart of the day: Earlier this year, heavily-shorted stocks ruled in terms of upside. That was before the death of the glamors amid a burst of profit-taking, which pushed the sexy names down a few pegs over the past three months. If Tuesday was any indication, they might be back for another run. As you can see by this chart, stocks with the highest short interest doubled the return of the 300 stocks with the lowest short interest (1.22% vs 0.60%), according to Bespoke.

The call of the day: Emerging-market stocks have lagged the S&P 500 for years now, but for 2014, they just took the lead, and that might mean the beginning of a bullish trend, says LPL Financial’s Jeff Kleintop. He listed several factors, including attractive valuations, strong growth prospects and improving financial conditions. “After years of avoiding EM, we believe these factors, on balance, are beginning to favor the return of some portfolio exposure to EM, but only added slowly as evidence of a lasting turn in relative performance mounts,” he wrote.

Not buying what Kleintop has to say? J.P. Morgan just came out with a double upgrade for Russia, advising investors “go long” the EM underdog.

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Need to Know (NTK) guides investors to the most important, insightful items required to chart a course ahead of each trading day. Anchored by lead writer Shawn Langlois, NTK will sift through the fire hose of news, commentary and data, from traditional and non-traditional sources, and extract what’s most essential. You can start reading NTK here as it begins publishing at approximately 6:30 a.m. ET, or sign up here to get a version in your email box every morning at approximately 8:45. a.m. ET.